State budget surplus won't last forever

FILE - In this Jan. 24, 2013 file photo, lawmakers applaud Gov. Jerry Brown as he enters the Assembly Chambers to give his State of the State address at the Capitol in Sacramento, Calif. In his second stint as California's chief executive, Brown has received wide praise for bringing the state's massive budget deficit into line, but he also is seeking billions of dollars in infrastructure spending, which could lead to financial pitfalls for the state. (AP Photo/Rich Pedroncelli, File)
— AP

FILE - In this Jan. 24, 2013 file photo, lawmakers applaud Gov. Jerry Brown as he enters the Assembly Chambers to give his State of the State address at the Capitol in Sacramento, Calif. In his second stint as California's chief executive, Brown has received wide praise for bringing the state's massive budget deficit into line, but he also is seeking billions of dollars in infrastructure spending, which could lead to financial pitfalls for the state. (AP Photo/Rich Pedroncelli, File)
/ AP

A $5 billion budget surplus came as a pleasant surprise to the state Legislature this year, but the politicians in Sacramento shouldn’t get too comfortable because a deficit will come back, a University of California, San Diego political scientist said Friday.

It’s because of the way California gets its money. In the Golden State, two-thirds of revenue comes from personal income taxes, which are cyclical with the economy. This year’s extra cash was unexpected, said Thad Kousser, a UCSD political scientist at an economic round-table discussion at the campus Faculty Club.

The problem for the state government is that when the economy tanks, the demand increases for public services such as welfare. That eats up revenue, which by definition won’t be as much because people make less money and therefore don’t pay as much tax. That’s on top of the continuing need to fund education and the prison system, which are only increasing in price.

Because of that, state’s have to operate differently than the private sector.

“When people want to buy fewer Fords, Ford can lay off some workers, it can cut production,” Kousser said. “In the state you have to expand your product line.”

Kousser said on average $11 of every $100 earned in personal income goes to the state in taxes. That’s above the $10 national average, but below New York’s $14, highest in the country. He said the top 1 percent of income earners in California pay 40 percent of the state’s income taxes, but that money fluctuates because some of it comes from capital gains that are realized only at times the investor wants to cash out.

Sales tax also isn’t helping as much as the state would like. A report released this week from the state Legislative Analyst’s Office said sales-tax revenue is not keeping up with economic growth, as services are eating up more of a consumer’s dollar. The demand for services is only going to increase due to an aging population of baby boomers.

Kousser said he believes Californians will see continuing efforts to get the state off its boom-and-bust revenue cycle in the form of propositions and legislation in Sacramento. Another problem in fixing California’s structure is political gridlock in Sacramento, which has only gotten worse.

“The good news is that we do have this temporary surplus, and that creates political room for such a deal,” Kousser said. “The bad news is that it relieves the pressure on Sacramento to radically change things.”

Kousser said the state balanced the budget this year also by cutting $8 billion in services. He said he expects general fund revenues to meet expenditures for the next five years.

He added that the state continues to have a “wall of debt,” which makes up 6 percent of expenditures. A large chunk of that debt goes to paying down bonds, while another large portion goes to pension shortfalls.